Rupee defence to liquidity: RBI earned over Rs 4 lakh cr in FY26, spent a third of it, Pg16

Key Highlights:

• The Reserve Bank of India (RBI) transferred a record Rs 2.87 lakh crore dividend to the Centre for FY26.
• RBI's total income in FY26 was a record Rs 4.28 lakh crore, a 26% increase from the previous year.
• The RBI sold $195 billion of foreign currency in FY26 to defend the rupee, leading to exchange gains of Rs 1.69 lakh crore.
• To counteract the impact of dollar sales, the RBI bought government bonds worth nearly Rs 9 lakh crore.

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Detailed Insights:

• The RBI's primary objective is to ensure liquidity, manage foreign exchange reserves, and maintain market order, which generates revenue.
• In FY26, the rupee fell by 10% against the US dollar due to factors like tariffs, wars, and increased gold and silver imports.
• Selling dollars by the RBI reduces rupee liquidity, which can raise interest rates; to avoid this, the RBI infuses rupees by buying government bonds.
• The RBI's income includes interest on foreign securities (Rs 1.08 lakh crore) and foreign deposits (Rs 27,407 crore).
• Major expenditures for the RBI include printing currency (Rs 4,875 crore), employee costs (Rs 10,136 crore), and provisions for potential losses (Rs 1.09 lakh crore).
• The Contingent Risk Buffer was reduced from 7.5% to 6.5% of the balance sheet to manage provision requirements.

Key Concepts Involved:

• Liquidity: The availability of liquid assets to a market or company.
• Foreign Exchange Reserves: Assets held by a central bank in foreign currencies.
• Repo Rate: The rate at which the central bank lends money to commercial banks against the security of government securities.